Fact check: was 'Lake Onslow' stymying investment in renewables?

Wednesday, 11 September 2024

Lake Onslow was designed as a solution to the practical problem of ‘dry years’ but quickly became a political football.

ANALYSIS: Prime Minister Christopher Luxon has blamed the former government’s decision to investigate building a pumped hydro scheme at Lake Onslow for some of the electricity sector’s woes.

Lake Onslow had “a chilling effect” on investment, he said late last month during what the Government dubbed an “energy crunch”.

“When there was talk of Lake Onslow sitting there at $16 billion in 2038, that stops people from wanting to invest in actual proper infrastructure and renewables as a consequence.”

Labour energy spokesperson Megan Woods is adamant that’s not true and that there was a “huge amount of investment” taking place while the Government was investigating the Onslow option.

It may be more than an academic disagreement.

The business case and technical studies on Lake Onslow are gathering dust in the archives at the moment, but Labour has not ruled out reactivating the project or something like it in future.

Prime Minister Christopher Luxon says Labour’s investigations into Lake Onslow had a chilling effect on investment.

So who is right, Luxon or Woods?

The major gentailers were opposed to Lake Onslow, in varying degrees.

That may have been in part because it would have curtailed their ability to leverage off scarcity to maintain high profit margins, and because of genuine concerns it was not the right option.

But there is good reason to think Onslow should, if anything, be positive for new investors in renewables at least.

The NZ Battery Project kicked off by former Energy Minister Megan Woods was designed to work out how the country could store 5 terawatt-hours of power, with Lake Onslow being one of two favoured options.

It would have consumed slightly more electricity than it produced, because water would have been pumped uphill and then dropped back down again to produce power — it’s purpose being to act as a battery and produce power when it was in short supply.

By smoothing out the peaks and troughs in supply and demand and providing day and year-round demand for power, pumped hydro schemes should make investment in unpredictable renewables such as wind and solar a less risky proposition.

The circumstantial evidence favours Woods.

The Labour government first committed $30 million to investigate Lake Onslow in July 2020.

The year prior, the thee majority state-owned gentailers, Meridian, Mercury and Genesis invested $204 million into new electricity generation and growth assets.

By the year to July 2023, the final year of the Labour term, that had risen to $476m, so their investment was increasing while work on Onslow was underway.

Moreover, while Onslow was being investigated by the Ministry of Business, Innovation and Employment, a new breed of private and overseas energy investors poured into the market, racing to build solar farms and wind farms.

They included Lodestone Energy, a company backed by Xero founder Rod Drury, The Warehouse founder Stephen Tindall and Trade Me founder Sam Morgan.

It set up shop in 2021, the year after investigations into Onslow began, and has since built two grid-scale solar farms with several more in the pipeline.

Lodestone Energy has been leading the charge towards solar generation and managing director Gay Holden says it would be happy with Onslow going ahead.

Another was Helios, a company backed by Google vice president Urs Holzle who moved to New Zealand in 2021 during the Covid pandemic, also to pursue the opportunity to build solar farms.

Lodestone managing director Gary Holden said he was not at all negative about Onslow.

“If Onslow was in the market, I'd actually be quite happy, because that enables more solar and more wind to produce more energy and Onslow would be the ‘buffering device’ for that.”

Offshore wind farm developers Taranaki Offshore Partnership and Bluefloat also began pursuing the idea of building multi-billion dollar wind farms off the coast of Taranaki while investigations into Lake Onslow were underway.

Neither appear to have had concerns.

Bluefloat spokesperson Tahlia Rangiwananga said it was “not particularly for or against Onslow”.

Taranaki Offshore Partnership project leader Giacomo Caleffi said Onslow would complement offshore wind.

“We are actually looking for a stable price; we're not the kind of operation that necessarily needs to ‘bank’ in a very volatile market.

“A long-term efficient energy market for New Zealand we think involves large projects, alongside smaller projects, and some form of battery and battery storage,” he said.

The actual base construction cost of the Lake Onslow scheme was estimated at about $8b and there are doubts it would be worth the money.

Officials appeared to be warming to a hotch-potch of smaller alternative investments, which they dubbed the “portfolio approach”, before the incoming coalition government pulled the plug on the so-called NZ Battery Project altogether.

But Luxon’s argument that the former government’s investigations into Lake Onslow were having a “chilling effect” on investment, and specifically into renewables, does not appear to stack up.

That may be more a case of the coalition government falling for some gentailer propaganda.